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Washington sues Kickstarted game creator who failed to deliver
Washington sues Kickstarted game creator who failed to deliver
May 2, 2014 | By Alex Wawro

May 2, 2014 | By Alex Wawro
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    38 comments
More: Indie, Business/Marketing



The Washington State Office of the Attorney General announced yesterday that it has filed what it believes to be America's first consumer protection lawsuit involving crowdfunding -- specifically, a Kickstarter campaign for a game.

The suit alleges that Edward J. Polchlepek III (aka Ed Nash) and his company, Altius Management, failed to make good on a successful Kickstarter campaign for Asylum Playing Cards.

The project beat its original $15,000 goal to raise $25,146 by the time it ended in October 2012. The Attorney General's office alleges Polchlepek and Altius collected the money and neglected to deliver either the cards or the various backer rewards. Some of those backers live in the state of Washington, which allows the state's legal team to get involved.

"Consumers need to be aware that crowdfunding is not without risk,Ē stated Washington State Attorney General Bob Ferguson in a press release announcing the lawsuit. ďThis lawsuit sends a clear message to people seeking the publicís money: Washington state will not tolerate crowdfunding theft. The Attorney Generalís Office will hold those accountable who donít play by the rules."

If you're curious, you can read the full text of the complaint on Scribd.

The outcome of this case could have significant ramifications for Kickstarter's popularity as a funding platform for game development. When contacted for comment by a Geekwire reporter, a Kickstarter representative issued the following statement:

"Tens of thousands of incredible projects have been brought to life through Kickstarter. We want every backer to have an amazing experience, and weíre frustrated when they donít. We hope this process brings resolution and clarity to the backers of this project."


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Comments


Michael DeSantiago
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If only BF4 were given the similar treatment to its poor launch, especially for the PC crowd. Buying an unfinished game and selling it as complete is just as illegal IMO.

Robert Carter
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There was a comic book artist who got funded for over $50,000 who began to burn backer rewards rather than send them to taunt his backers for "being greedy" (he was apparently tired of being asked when the rewards would ship). Im very surprised he was not the first lawsuit, as he actively decided to screw backers.

Does anyone know what the case was here? Did the crew underestimate the hardships in completing a project and earnestly try to complete it, or did they cut and run with the money, or was it somewhere in the middle where money was simply mismanaged?

Link to the afore mentioned comic artist (though there are better links that share more quotes from the artist. The guy sounds somewhere between out-of-touch to unhinged at times) http://mashable.com/2014/03/06/kickstarter-comic-burns-books/

Andrew Wallace
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Looking at the KS page, the last backer update was over a year ago and the estimated ship date for rewards was Dec 2012. Sounds like he cut and ran, a pretty clear case of fraud from the limited information I have.

I'll be much more concerned when someone sues a company whose product does ship but fails to live up to expectations, or someone who keeps in contact with backers and claims to still be working on it despite significant delays.

Robert Carter
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I agree, that situation you pose is terrifying, and could even kill crowd funding if it sets a precedent that backers can sue you for not meeting their expectations, including launch date, shipping times, etc.

However I also agree that this is NOT that type of case. It does look like the guy more or less disappeared with the money, and if that is the case I am more happy than not that this suit is happening. I know someone who printed their own art on a back of cards from Bicycle and they said it was a straight forward process. Im assuming he ran into issue with commissioning artists then, which is also not a terribly difficult process (as long as you find and vet trustworthy artists).

We shall see soon enough, I suppose

Luis Blondet
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Shameful. If you get funded, it is your responsibility to deliver, no matter how long it takes. I'm not just saying this without walking in the dev's shoes. I had a successful kickstarter campaign and the programmer stole the funds and delivered only an unstable buggy game that couldn't stay up past the 2nd week, but still, i was the one who promised good on the game and now i am saving up my own personal money to get the game completed. When my backers ask, i tell them a thorough progress report with realistic projections. It still sucks, but it's better than stiffing your backers and tainting your reputation to ever crowdsource again.

Those that disrespect their backers are the scum of the earth who's promises have 0 value.

Greg Scheel
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Bonafide attempt to deliver is the only sure and proper standard, your programmer should be subject to legal censure, not you.

Luis Blondet
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The programmer lives in Russia and even boasted about being protected by the Russian courts. I guess they don't respond kindly to Americans suing Russians in their own court system.

It's ok, though. I'm working hard and saving up. I learned from my naivete and will be more careful this time.

Sometimes the fox does eat the hens and there's nothing you can do but learn and rebuild.

Greg Scheel
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Ouch, hard lesson.

Yea, the political situation is run by bankers, and does not take the needs of citizens into account, we would get real respect if our government actually represented us and treated other countries with respect.

This kind of situation is why I am only going to hire locally here in the SF bay area, I feel I can manage people directly, but not remotely, and certainly not overseas.

I still wish I could hire Korean artists, they rock.

Hope things work out for you.

Colin Sullivan
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While there is definitely a place for consumer protection lawsuits against fraudulent Kickstarters, I hope it doesn't become a trend except in the worst cases.

The community and most backers understand that failure is a possibility, so a third party like a state AG getting into it to protect consumers may not always be acting in everyone's best interest. Small claims courts and possibly class actions can do most of the same things while still representing the backers.

Seems like this is a pretty clear case of fraud though if he couldn't even get playing cards printed, there are a lot of projects that do that and it seems fairly straightforward and replicable.

Shameless plug for my own post that responds to this and talks about the legal obligation more broadly: http://gamasutra.com/blogs/ColinSullivan/20140502/216904/What_Do_
You_Owe_Your_Backers_on_Kickstarter.php

Alex Covic
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"Failure is a possibility" - I disagree.

When the project is 'backed', you entered the legal sphere of liability.

The easiest thing is to frame exactly on what you can deliver and then deliver it. Let a lawyer look over your KS statements. Have an insurance policy just in case the project may go wrong. Just because you think you're not liable, following KS guidelines and TOS, does not prevent others to think differently.

Too many people - with no money at all? - think of KS as a risk-free money machine to make their own dreams come true. Hopefully, this will clear some heads.

Colin Sullivan
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I agree there is a liability, but defining the liability and protecting against it are difficult.

Having a lawyer review your Kickstarter helps, but part of the problem is the lack of a clearly defined contract between project creators and backers. Without that being clearly defined, what is the scope of liability? Refunds certainly cover it, but when it comes to delivering the liability becomes ambiguous at best.

To protect yourself you can form a limited liability entity. Insurance is another possibility, although my guess is that the cost will be relatively high. That may change if specialized policies are created, but I haven't heard of any yet. Consumer protection lawsuits are also likely to circumvent limited liability protection and may not be covered by insurance.

I agree that people wrongly think of Kickstarter as a risk free money machine, but I don't think consumer protection lawsuits are the best way to go. Not only do they circumvent reasonable protections the project creator might put in place, they have the potential to punish when backers might be more understanding. Kickstarter projects have some level of risk involved and most backers know that.

Richard Urich
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I think what you describe is exactly what a lot of people fear will be the result of lawsuits against Kickstarters. If the only projects welcome on Kickstarter are from people who know enough about business to create a LLC, and have the money to hire a lawyer and acquire proper insurance for a project that has not yet even been posted, that makes Kickstarter a lot less interesting place. I mean, some projects are tiny and asking for like $1000. Would that project really exist if they had to form a LLC, hire a lawyer, and buy insurance? It's not like hiring a lawyer to look over every post you make to Kickstarter is going to be as cheap as a cup of coffee, and forming a LLC can run over $2000 in some states like New York.

Wendelin Reich
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Richard, I hear you, but the last two years have clearly shown that backers on KS do not view the site in terms of a gift-economy or patronage, but expect value in return. There have been several cases where backers (not some consumer protection bureau) initiated lawsuits.

The good news is that there are sites for people who need small somes and cannot afford to be held accountable: pleasefund.us, patreon, and so on.

Andy Lundell
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@Richard, I fairness, forming an LLC is pretty cheap and painless in most states.

Anyone doing a Kickstarter for more than a couple grand without a LLC is *CRAZY*.

That's usually what people mean when they say that there's risks in Kickstarter. They mean that the creator's newly formed business will fail. They don't mean that the project creator gets to put the money directly into his own pocket and keep it.

John Owens
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Failure is always a possibility. Why do you think games get cancelled even from professional studios that don't require a lot of work to be outsourced?

However not all failure is without liability.

Corey Cole
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Actually, in California, forming an LLC for a Kickstarter is crazy. I started to do just that, then talked it over with a competent accountant. I learned that LLC's are not designed for companies that sell retail products. We would have a huge minimum state tax every year based on Kickstarter proceeds and later sales.

I cancelled the LLC and formed an S Corporation instead. More rules, legal requirements, paperwork, and headaches, but without the gigantic minimum tax (referred to as "fees" - They are over and above regular income tax). LLC's are designed for reducing liability when you have a partnership, typically one owning real estate. They don't work well for retail businesses.

David Lejeune
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The backers of The Doom That Came to Atlantic City should probably be paying attention to this case.

Paul Lenoue
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They delivered that gae. I have it on my bookshelf. It's fun.

Ben Sly
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That's only because Cryptozoic, a completely unrelated company, stepped in to fulfill the pledges free of charge. The project was cancelled until they remedied it. It would have been a very different story had they not intervened.

Wendelin Reich
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As a European living in a country with strong consumer-protection laws, I believe this case is great news for crowdfunding!

Let's not forget that there is a strong and consistent support for crowdfunding - many games continue to get successful funding, just check out KS. This demand exists despite the fact that "Kickstarter-backslash" has been talked up on gaming-sites for more than a year now.

Cases like this one reduce some of the risk consumers face when supporting crowdfunding projects, and they will probably reduce the "backslash". If demand remains unchanged, crowdfunding might actually increase!

Jakub Majewski
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I think by focussing on the consumer, you ignore the invisible behind-the-scenes effect this will have. For the developers, this dramatically boosts the risks of Kickstarter. All of a sudden, if you fail even through no fault of your own, there's the possibility of a lawsuit. This will inevitably reduce the number of high-risk projects showing up on Kickstarter - which is ironic, considering that the scam project discussed here was about as low-risk as can be.

A balance can be struck between scam protection and allowing a degree of risk in there, but the interests of both sides of the story need to be considered. Furthermore, there is a genuine danger that the government goes too far in intervening into free agreements (as I believe it already has in Europe, contributing to economic stagnation). The company in question, just like everyone else on Kickstarter, made no implicit promise for anything, because Kickstarter is explicitly "backer beware" in its policies. It is shameful that someone would run a scam like this? Yes. But sometimes, shameful things should be simply left alone, for risk of causing negative and often entirely unexpected, unpredictable side effects.

Wendelin Reich
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See my comment below.

Mike Kasprzak
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The makers of iControlPad 2 failed to make their product, losing a lot of money to poor choice of manufacturers, and other excuses. Now their damage control is attempting to sell off the parts they can, to give everyone a few bucks back.

And then there's Clang.

Michael Pianta
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Well this is interesting. It all hinges on what the accusation is. If the accusation is fraud - the guy ran off with the money (and from the earlier comments, many people seem to think that's what happened), then that's fine. Fraud's fraud and I don't see anything novel about that. If, however, as the headline implies, the accusation is simply that he failed to deliver, then that's a huge problem for Kickstarter.

Caio Marchi
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This Attorney is poisonous.
A part of crowdfunding is uncertainty. You crowdfund something when you can't do it via regular ways. But it has no guarantees, and this is good. This kind of funding creates a community that can take risks and make significant progresses that may not be possible at the Market.

This attorney sees crowdfunding as paying upfront for a product, but it is more than that.
Taking risks away will damage small companies for their mistakes instead of let them grow and let the community deal with them. And will take away ambicious and ground breaking ideas from completion.

This guy is cancer.

Wendelin Reich
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It is an unfortunate myth, especially prominent among conservatives in the US, that consumer protection reduces economic activity.

While consumer protection (like everything) can go too far, this is not the case here, and it has nothing to do with why some European countries are hurting at the moment. (Incidentally, Germany is doing fantastic, and it is a place of very strong consumer protection laws.)

Historically, the 'right (of a corporation) to be sued' was one of the most important developments in economic law since the middle ages. If you cannot sue a company, you cannot trust it. If you can sue it, you can put your faith in the 'system' and do economic exchanges with strangers whom you have no reason to trust. Like a company on Kickstarter.

Obviously, consumer protection agencies cannot and will not demand that KS-projects shoulder *all* the risk of a new project. Note that this is not the case here as well. In the current case, we are talking about fraud. This is one type of risk that consumers really dont want to shoulder, and that is a turn-off for many potential backers.

Jakub Majewski
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You're wrong, plain and simple. And I can even point to the reason why you are reaching the wrong conclusions - the reason is that you are looking through the prism of manufacturing and sales, as opposed to thinking about research and development. These are things easy to ignore, because when you weaken R&D, the impact is not seen immediately - in fact, sometimes it can be several decades before any real impact is felt.

You say Germany is doing fantastic. Absolutely. But not in terms of R&D. Germany is not known as a hub of high-tech innovation. It's not where the Microsofts, Googles, and Facebooks of the world emerge into the sunlight. Even in the industries where Germany has a technological edge, you can definitely sense risk aversion - there's a reason why the modern electric car emerged out of Japan instead of Germany. German businesses do a fine job with gradual improvement of existing products, but when it comes to true innovation, they're way behind the curve. It's well worth noting that the biggest and most famous German game developer is actually owned by Turkish immigrants - who, like all immigrants, are open to risk by definition. And of course, this is not a uniquely German problem. Most of Europe is like this - and it's no coincidence that countries who are neither excellent in quality manufacture nor in risk-taking (here's looking at you, France) are basically on a slow spiral to economic irrelevance.

I'm not going to claim that this is all the fault of consumer protection - that would be nonsense. Obviously, there are many different aspects to this, and it's a bit of a chicken-and-egg thing. What came first? Consumer protection, or risk aversion amongst manufacturers? In fact, both stem from the same basic issue, which is risk aversion in general. Consumers want to avoid risk, so they want consumer protection laws. But businessmen are not a breed apart - amongst other things, they are also consumers. Unless you're schizophrenic, you can't be risk-averse when shopping, and then suddenly become a courageous risk-taker when you get to work.

Laws stem from the mentality of the people who make them - but they also shape the mentality. Every time the legal scales slide a little bit in favour of risk aversion, they slide, by definition, a little bit away from innovation. And that, ultimately, is disastrous.

Wendelin Reich
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"You're wrong, plain and simple."

Sorry, but I think you went off the rails here - no sense in replying.

Greg Scheel
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@Majewski

Enforcement of contracts is the basic function of a government in the economy. That includes consumer protection. You could not be more wrong about risk.

Flat out, the American pseudo-conservatives are assed out wrong, protecting consumers, society, and the environment is the primal responsibility of right thinking and right acting government.

Innovation is the result of an attitude, not of the laws.

Seriously, are you really aware of how litigious we are out here? Check out Apple, they are headquartered down the street from my dad's place. For that matter, 'Santa Clara County vs. the Southern Pacific Railroad' is a good one to google, that's where 'corporate personhood' started. We sue first and think later around here, at least those of us who are not police.

For that matter, facebook did not invent social, they just scammed college kids, and google did not invent search, they just perfected it, then scammed college kids. I know this because I have been here all along.

We do not punish failure out here, we reward it, the bigger the fail, the higher you climb.

I just have not f'ed up big enough yet. :P

John Owens
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But Kickstarter backers aren't consumers as they aren't technically buying anything.

They're closer to investors and as a result should be aware of the risk.

That's the issue and that's how this will be decided.

However all that being said I remember looking at KS a couple of years ago and one of the things we remarked on was the fact that giving backers rewards could and probably would constitute a separate contract which you HAD to honour which would then fall under consumer protection laws.

Bruno Xavier
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Back then when Kickstarter was starting the big hype I questioned what would be the results of when things like this begin to happen.
Commenters politely called me a fool, 'Kickstarter is perfect'; Well...

Andy Lundell
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That was probably because you were specifically predicting that DOUBLEFINE would would rip consumers off and/or fail and/or destroy Kickstarter.

http://www.gamasutra.com/view/news/40261/For_one_Kickstarter_empl
oyee_Double_Fines_project_is_literally_a_dream_come_true.php#comm
ent138434

David Paris
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What is strange is that this looks like an easy project to deliver on. They have the art. All they need to do is print it out and they're good to go.

I would expect something a bit more extravagant for most scamming. But then I suppose, any scam that nets you 15k without repurcussion (until now) seems like a good one.

Justin Kovac
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Exactly. There are numerous Bicycle card Kickstarters. They are essentially a way to pool enough money so the minimum order can be met at a decent cost. Pay for the artist and admin fees to deliver the goods, pretty simple and typical project. That is why is yells Fraud when they failed to deliver and stop updates with no conclusion on why they failed to deliver.

Sean Kiley
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Fraud and poor planning will continue to be prevalent on KS until something like this happens. Free market at work.

Caio Marchi
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Government is not the free market operating

Andy Lundell
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I'm pretty sure that's what he means.

He's saying that the fraud and poor planning are the "Free market at work".

Caio Marchi
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I thought he was considering government as part of free market as one that creates mechanisms to prevent fraud. And this intervention was "Free market at work".

The meaning is ambiguous.


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